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Ukraine Introduces Tax Benefits for Major Investment Projects

Ukraine Introduces Tax Benefits for Major Investment Projects

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On 28 March 2021 the package of tax benefit laws for major investment projects (“Projects”) entered into force. 

In general, state support of Projects is regulated by Law of Ukraine “On State Support for Investment Projects with Significant Investments” No. 1116-IX, dated 17 December 2020 (“Law”), which became effective on 13 February 2021.  

Besides the tax benefits, state support also includes granting rights to use state and municipal land plots and/or construction of related infrastructure facilities by the state or municipality.

State support will be granted for Projects, which satisfy the following conditions:

  • Projects must be implemented in the specified industries (processing, mining (except for coal, oil, and natural gas), infrastructure, logistics, education, tourism, healthcare, arts, etc.)
  • Projects must envisage construction, modernisation, or technical (technological) re-equipment
  • in the process of Project implementation, at least 80 jobs must be created with an average salary at least 15% higher than that of the relevant industry
  • the amount of capital investment per Project may not be less than EUR20 million
  • Project implementation period may not exceed five years
  • Projects should be implemented through a special purpose vehicle established in Ukraine and 100% owned by the investor (“SPV”)

Tax benefits include: 

  • exemption from VAT and customs duty for the import of new equipment and parts
  • 5-year exemption from CIT for the income received as a result of Project implementation
  • exemption from land tax (or reduced rate) for the land plots used in Project by the decision of local authorities

The investor can take advantage of tax benefits until 1 January 2035.

The amount of state support (including tax benefits) may not exceed 30% of the overall amount of investments in Projects. The Law also establishes a special institution that will support the implementation of Projects (a so-called “investment nanny”).

State support will be granted based on a special investment contract (“Contract”). Contract must determine the terms of Project implementation and must be concluded between the Cabinet of Ministers of Ukraine (or a local authority), SPV, and the investor. The parties may choose the governing law of Contract and the dispute resolution venue. In case of non-fulfillment or improper fulfillment of Contract by the investor or SPV, the Cabinet of Ministers may unilaterally terminate it. In this case, the investor must reimburse the whole amount of the provided state support, including unpaid taxes.

The state support will be granted to Projects starting from 1 January 2022. 

By Vadim Medvedev, Partner, and Kyrylo Bocharov, Associate, Avellum

Ukraine Knowledge Partner

AVELLUM is a leading Ukrainian full service law firm with a key focus on Finance, Corporate, Dispute Resolution, Tax, and Antitrust.

Our aim is to be the firm of choice for large businesses and financial institutions in respect of their most important and challenging transactions.

We build lasting relationships with our clients and make them feel secure in new uncertain economic and legal realities.

We incorporate the most advanced Western legal techniques and practices into our work. By adding our first-hand knowledge, broad industry experience, and unparalleled level of service we deliver the best results to our clients in their business endeavours. Our partners are taking an active role in every transaction and ensure smooth teamwork.

AVELLUM is recognised as one of the leading law firms in Ukraine by various international and Ukrainian legal editions (Chambers, The Legal500, IFLR1000, The Ukrainian Law Firms, and others).

Firm's website: www.avellum.com

 

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